Consumer Prices Fell In June

The Consumer Price Index (CPI), the measure of prices consumers pay at the retail level, went down in June, but only because gasoline prices fell from their lofty levels.

The U.S. Labor Department says the June CPI fell 0.2 percent on a seasonally adjusted basis, because gasoline prices were down 6.8 percent. Once food and energy costs are removed from the equation, the “core” inflation rate for June was 0.3 percent.

While the drop in gasoline prices helped consumers a lot, inflation continues to spread more generally across the economy, according to economist Joel Naroff of Naroff Economic Advisors, of Holland, Pa.

“The surge in gasoline costs was the trigger to the major slowdown in the economy we experienced during the spring and at least for a while we have seen some of the gasoline increase backed out,” Naroff said. “However, gasoline prices are still up almost 35 percent compared to last year, so households are still having their wallets emptied into their gas tanks.”

Most other prices are rising

Once you get past the headline drop in gasoline prices, Naroff says there were few areas where prices fell. Vehicle prices were up, as were clothing costs. Medical care, clothing and shelter also moved upward but more moderately.

With fewer consumers buying homes, there is more demand for rental property, and Naroff said that is leading to an increase in rents across the board.

“With rental costs rising, this is now adding to the index and has led to the Feds' closely watched core index, which excludes food and energy, to accelerate,” Naroff said. “The trend is such that the core could exceed the Fed's desired top level of about two percent by the end of the fall.”

Manufactured food costs rise

Meanwhile, the cost of food rose last month. While fresh meat and vegetable prices were generally lower, manufactured grocery items were more expensive. The CPI for home-consumed food is up nearly five percent in the last 12 months.

Even though gasoline prices were down in June, they are rising again this month and Naroff sees that as a major problem for the economy. He suggests oil prices remain artificially high and the resulting higher gasoline costs present consumers with a major burden.

“Households' incomes are not rising fast enough to overcome these high costs and as a consequence, spending will remain restricted,” Naroff said. “Even if, not when, the soft spot ends, the upturn could continue to be quite disappointing.”